Effects of Incorrect Specification on the Finite Sample Properties of Full and Limited Information Estimators in DSGE Models
Sebastian Giesen, Rolf Scheufele
Abstract
In this paper we analyze the small sample properties of full information and limited information estimators in a potentially misspecified DSGE model. Therefore, we conduct a simulation study based on a standard New Keynesian model including price and wage rigidities. We then study the effects of omitted variable problems on the structural parameters estimates of the model. We find that FIML performs superior when the model is correctly specified. In cases where some of the model characteristics are omitted, the performance of FIML is highly unreliable, whereas GMM estimates remain approximately unbiased and significance tests are mostly reliable.
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Bottom-up or Direct? Forecasting German GDP in a Data-rich Environment
Katja Drechsel, Rolf Scheufele
Abstract
This paper presents a method to conduct early estimates of GDP growth in Germany. We employ MIDAS regressions to circumvent the mixed frequency problem and use pooling techniques to summarize efficiently the information content of the various indicators. More specifically, we investigate whether it is better to disaggregate GDP (either via total value added of each sector or by the expenditure side) or whether a direct approach is more appropriate when it comes to forecasting GDP growth. Our approach combines a large set of monthly and quarterly coincident and leading indicators and takes into account the respective publication delay. In a simulated out-of-sample experiment we evaluate the different modelling strategies conditional on the given state of information and depending on the model averaging technique. The proposed approach is computationally simple and can be easily implemented as a nowcasting tool. Finally, this method also allows retracing the driving forces of the forecast and hence enables the interpretability of the forecast outcome.
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Qual VAR Revisited: Good Forecast, Bad Story
Makram El-Shagi, Gregor von Schweinitz
Abstract
Due to the recent financial crisis, the interest in econometric models that allow to incorporate binary variables (such as the occurrence of a crisis) experienced a huge surge. This paper evaluates the performance of the Qual VAR, i.e. a VAR model including a latent variable that governs the behavior of an observable binary variable. While we find that the Qual VAR performs reasonably well in forecasting (outperforming a probit benchmark), there are substantial identification problems. Therefore, when the economic interpretation of the dynamic behavior of the latent variable and the chain of causality matter, the Qual VAR is inadvisable.
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Regional Determinants of MNE’s Location Choice in Post-transition Economies
Andrea Gauselmann, Philipp Marek
Empirica,
Nr. 4,
2012
Abstract
This article focuses on the impact of agglomeration and labour market factors on the location choice of MNEs in post-transition economies. We compare data from 33 regions in East Germany, the Czech Republic and Poland using a mixed logit model on a sample of 4,343 subsidiaries for the time period between 2000 and 2010. The results show that agglomeration advantages, such as sectoral specialization as well as a region’s economic and technological performance prove to be some of the most important pull factors for FDI in post-transition regions.
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Does Central Bank Staff Beat Private Forecasters?
Makram El-Shagi, Sebastian Giesen, A. Jung
IWH Discussion Papers,
Nr. 5,
2012
Abstract
In the tradition of Romer and Romer (2000), this paper compares staff forecasts of the Federal Reserve (Fed) and the European Central Bank (ECB) for inflation and output with corresponding private forecasts. Standard tests show that the Fed and less so the ECB have a considerable information advantage about inflation and output. Using novel tests for conditional predictive ability and forecast stability for the US, we identify the driving forces of the narrowing of the information advantage of Greenbook forecasts coinciding with the Great Moderation.
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The Performance of Short-term Forecasts of the German Economy before and during the 2008/2009 Recession
Katja Drechsel, Rolf Scheufele
International Journal of Forecasting,
Nr. 2,
2012
Abstract
The paper analyzes the forecasting performance of leading indicators for industrial production in Germany. We focus on single and pooled leading indicator models both before and during the financial crisis. Pairwise and joint significant tests are used to evaluate single indicator models as well as forecast combination methods. In addition, we investigate the stability of forecasting models during the most recent financial crisis.
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Regional Determinants of MNE´s Location Choice in Transition Economies
Andrea Gauselmann, Philipp Marek
WIFO Working Papers,
Nr. 412,
2011
publiziert in: Empirica
Abstract
The article at hand analyses the impact of agglomeration effects, labour market conditions and other determinants on the location choice of MNEs in transition economies. We compare data from 33 regions in East Germany, the Czech Republic and Poland using a conditional logit model on a sample of 4,343 subsidiaries for the time period between 2000 to 2010. The results show that agglomeration advantages, such as sectoral specialization, a certain economic diversity as well as a region’s economic and technological performance prove to be some of the most important pull factors for FDI in transition regions. In addition, the labour market factors prove to play an important role in the location of FDI.
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Are Qualitative Inflation Expectations Useful to Predict Inflation?
Rolf Scheufele
Journal of Business Cycle Measurement and Analysis,
Nr. 1,
2011
Abstract
This paper examines the properties of qualitative inflation expectations collected from economic experts for Germany. It describes their characteristics relating to rationality and Granger causality. An out-of-sample simulation study investigates whether this indicator is suitable for inflation forecasting. Results from other standard forecasting models are considered and compared with models employing survey measures. We find that a model using survey expectations outperforms most of the competing models. Moreover, we find some evidence that the survey indicator already contains information from other model types (e. g. Phillips curve models). However, the forecast quality may be further improved by completely taking into account information from some financial indicators.
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Flow of Conjunctural Information and Forecast of Euro Area Economic Activity
Katja Drechsel, L. Maurin
Journal of Forecasting,
Nr. 3,
2011
Abstract
Combining forecasts, we analyse the role of information flow in computing short-term forecasts up to one quarter ahead for the euro area GDP and its main components. A dataset of 114 monthly indicators is set up and simple bridge equations are estimated. The individual forecasts are then pooled, using different weighting schemes. To take into consideration the release calendar of each indicator, six forecasts are compiled successively during the quarter. We found that the sequencing of information determines the weight allocated to each block of indicators, especially when the first month of hard data becomes available. This conclusion extends the findings of the recent literature. Moreover, when combining forecasts, two weighting schemes are found to outperform the equal weighting scheme in almost all cases. Compared to an AR forecast, these improve by more than 40% the forecast performance for GDP in the current and next quarter.
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Macroeconomic Challenges in the Euro Area and the Acceding Countries
Katja Drechsel
Dissertation, Fachbereich Wirtschaftswissenschaften der Universität Osnabrück,
2010
Abstract
deutscher Titel: Makroökonomische Herausforderungen für die Eurozone und die Beitrittskandidaten
Abstract: The conduct of effective economic policy faces a multiplicity of macroeconomic challenges, which requires a wide scope of theoretical and empirical analyses. With a focus on the European Union, this doctoral dissertation consists of two parts which make empirical and methodological contributions to the literature on forecasting real economic activity and on the analysis of business cycles in a boom-bust framework in the light of the EMU enlargement. In the first part, we tackle the problem of publication lags and analyse the role of the information flow in computing short-term forecasts up to one quarter ahead for the euro area GDP and its main components. A huge dataset of monthly indicators is used to estimate simple bridge equations. The individual forecasts are then pooled, using different weighting schemes. To take into consideration the release calendar of each indicator, six forecasts are compiled successively during the quarter. We find that the sequencing of information determines the weight allocated to each block of indicators, especially when the first month of hard data becomes available. This conclusion extends the findings of the recent literature. Moreover, when combining forecasts, two weighting schemes are found to outperform the equal weighting scheme in almost all cases. In the second part, we focus on the potential accession of the new EU Member States in Central and Eastern Europe to the euro area. In contrast to the discussion of Optimum Currency Areas, we follow a non-standard approach for the discussion on abandonment of national currencies the boom-bust theory. We analyse whether evidence for boom-bust cycles is given and draw conclusions whether these countries should join the EMU in the near future. Using a broad range of data sets and empirical methods we document credit market imperfections, comprising asymmetric financing opportunities across sectors, excess foreign currency liabilities and contract enforceability problems both at macro and micro level. Furthermore, we depart from the standard analysis of comovements of business cycles among countries and rather consider long-run and short-run comovements across sectors. While the results differ across countries, we find evidence for credit market imperfections in Central and Eastern Europe and different sectoral reactions to shocks. This gives favour for the assessment of the potential euro accession using this supplementary, non-standard approach.
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